East Asia's diverse insurance markets are attracting unprecedented attention from the international reinsurance community, and with good reason. The financial crisis of the late 1990s is now recognised as a serious, but short-lived blip in the economic development history of most East Asian countries. As their economies enter the new millennium, most are stronger than ever, characterised by increasing prosperity, collapsing trade barriers, and higher insurance spending. For reinsurers, this is a formula for organic growth, an increasingly rare prize in the saturated markets of the West.

Of course, the story of East Asia is not simply one of opportunities for westerners. Many local opportunities are being grasped locally. For example, the Tokio, Mitsui, and Yasuda marine and fire companies, three of Japan's largest insurers, have each made moves to establish businesses in Myanmar. A proposed trade agreement between Singapore and Japan has been extended to cover export credit reinsurance. In a model transpacific partnership, Taiwanese financial services giant Fubon is planning to team up with CitiGroup, and use the combined resources of both companies to make an impact across East Asia. Dozens more inter-Asian cross-border ventures are underway.

Meanwhile foreign insurers have moved from cautious enquiry to aggressive expansion. When they meet with local counterparts from the 11 cities of the East Asia Insurance Congress at the organisation's 20th biennial conference in Manila in October, along with brokers, reinsurers, and suppliers, talk of the rebounding East Asian economy will be optimistic. The tigers are awake again - and in general stronger, more liberalised, and with more potential than ever.


Taiwan rattled its way onto reinsurers' radar screens in September 1999 when the massively destructive Chi Chi earthquake wiped out about 107,000 homes and hundreds of businesses, including high tech computer processor manufacturing facilities. Thus, despite increasingly tense relations with China and a nail-biting national election, a residential earthquake insurance pool is on Taiwan's agenda. State-owned Central Reinsurance Corporation has engaged catastrophe modellers Eqecat and intermediaries Willis to strike a plan and look for support.

Meanwhile the Taiwanese market is growing steadily. Year-on-year headline figures show misleadingly large gains, since non-life companies took in record-breaking premiums of NT$85,181 million in 1999, up 12.28%. The huge rise was driven by the introduction of compulsory motorcycle third party liability (TPL) insurance, which became mandatory from January last year, and yielded NT$8,239 million. Premium income growth excluding the class was a respectable 1.42%. Marine cargo business slid 12.62%, and marine hull 15.13%, but aviation increased 14.09%.

So far this year performance has increased, but growth has reversed. In the first five months of 2000, Taiwan's leading insurers, Fubon, Union, Chung Kuo, and Taiwan Fire and Marine, each reported performance ahead of targets, but industry-wide non-life premium for the period was NT$36.99 billion, down 5.89% from 1999. Foreign insurers have only a tiny share of the market, about 2.36%.

The market has attracted the attention of CitiGroup, the US giant formed through the mergers of Travelers Insurance Group and CitiBank. A venture into Taiwan would be its first into insurance outside the United States. CitiGroup plans to purchase 15% of Taiwan's quoted, market-leading Fubon Insurance, Fubon Commercial Bank and Fubon Securities for $816 million, as well as 15% shares in unlisted Fubon Life Assurance and Fubon Securities Investment Trust. At the time of writing, a disagreement over the price of the two unlisted companies was holding up the deal, but analysts seem satisfied that ultimately it will be completed. CitiGroup says its investment will serve as a platform from which to explore the potential of other East Asian insurance markets, while Fubon will benefit from improved operational and technological standards.

South Korea

While neighbouring Japan languishes, Korea is flourishing, albeit awash with western-style, market share underwriting, and only after collapses and crises brought about by the regional strife of 1997. Non-life insurers saw their net profits fall to Won 85.9 billion in the year ended 31 March 2000, down from Won 198.7 billion in 1999, but the country's Financial Supervisory Commission blamed the deterioration on a phenomenon familiar to insurers around the world: a marked rise in motor losses. Competition follows merger activity in preceding years, along with increased attention to solvency and best practice in marketing. Overall, non-life premium income rose 0.9% last year, but life income fell.

Standard & Poor's (S&P) is optimistic. Although hurdles remain for Korean insurers, the ratings agency believes the Korean market is attractive due to the size of the economy and the industry's long-term growth prospects, especially in the life sector. The investment environment is improving, and some insurers are strengthening their balance sheets and recording improvements in earnings. “The insurance industry may return to modest growth in the near term,” S&P says. Following the financial crisis, the Commission removed restrictions barring foreign companies from 100% ownership of Korean insurers.

Meanwhile further deregulation is in the works for South Korea. Discussions are underway to develop a framework to allow bancassurance, although progress may be slow. Commission vice chairman Kim Ki-hong told local reporters that it is unlikely that banks would be given the go-ahead to sell any insurance products before the end of 2000, and when the nod does come, it is likely to be on a product-by-product basis.

Local insurers are well-established, but there is room for foreign growth, especially in non-life lines, where expenditures are only $264 per capita, about a third of annual life insurance spending. UK's Royal & SunAlliance launched a non-life operation on 1 July to write large commercial business, the first European in the field. So far, however, foreign insurers in Korea are relatively few, with four foreign entrants facing 12 local insurers. The top five have about 73% of the market, and the powerful chaebols control four of them. The internet is increasingly popular for distribution of personal lines products, but the chaebols are leading Korea's internet revolution, limiting its usefulness as an entry point for foreign companies. There is opportunity for foreign insurers in Korea's sophisticated market, but so far no easy pickings.


Unlike those in East Asia's less developed economies, Japan's non-life sector is approaching a nadir. The insurance business reflects the economy overall, which has slid back into technical recession. Corporate bankruptcies and debt defaults were up by about 50% early in 2000. After the failure of Dai-Ichi Mutual Fire & Marine Insurance Co, the first Japanese non-life collapse in more than 50 years, S&P issued a gloomy, negative outlook for the sector.

It said financial results for the fiscal year ended 31 March 2000 revealed a deterioration in average loss ratio, primarily arising from liberalisation of prices in the motor sector, which began in 1998. However, foreign insurers cheered the market reforms. From July this year foreign and domestic insurers have enjoyed greater pricing freedom and the opportunity to establish direct marketing companies which, although destined to increase competition even further, are likely to shake the foundations of Japan's non-life industry, which is dominated by giant insurers with extensive connections to other areas of commerce and industry. Non-life insurers are introducing expense reduction programmes, led by the smaller companies who have gained ground on the giants, who followed suit.

As Japanese reform and restructuring progress, ratings agency Moody's has warned that liberalisation will prove a negative for local insurers, claiming ultimately it will “completely and irrefutably remove supports that have, for some companies, been a significant determinant of their financial strength.” Signs for the longer-term, continuing profitability of the 12 leading property/casualty players are not good, because of the combined effect that competition, high market penetration, and tariff liberalisation will have on rates and profits, Moody's says. It forecasts flat growth over the next decade, on top of declining revenues over the last two years. “Combined ratios are likely to rise above 100% within the next five years,” Moody's says, encouraging diversification.

Meanwhile Japan's regulator, the Financial Supervisory Agency, is planning to amend legislation in October to allow insurers, banks, and securities houses jointly to market financial products on-line, overturning the current legal prohibition for cross-sector marketing. From April 2001, banks will be permitted to market insurance products. At first, they will be limited to selling credit life and long-term property covers, but the range of covers they are permitted to sell is expected quickly to be expanded. Reinsurers will welcome a pending plan to scrap the government's compulsory motor liability reinsurance scheme as early as 2002. Currently the government levies 60% of insurers' compulsory motor TPL premium income.

Despite the liberalisation moves, long-running talks between the US and Japan over deregulation continue to be bogged down. At the time of writing, a remaining sticking point was the government's postal savings schemes, which the US insists belong in the private sector. The US continues to shirk the role of compromise player in the Japanese talks, and instead appears ready to continue to issue and restate its demands until the Japanese insurance sector is shaped exactly the way US negotiators desire.

Following on the reforms, American International Group, the insurance pioneer in East Asia and a strong force behind the bilateral insurance trade negotiations, has linked with mid-sized insurer Fuji Fire and Marine, Osaka. It is the first significant joint venture linking a Japanese insurer with a western company, and is expected to increase combined profits by ¥40 billion in five years. The groups plan to establish a ¥200 million joint venture company to swap products and forge ahead with joint product development. A share swap is also planned, giving AIG 3.6% of Fuji Fire, but no merger is on the cards - at least not yet. Locally, Mitsui Marine and Fire has announced it intends to merge with competitor Sumitomo Marine and Fire Insurance Co late in 2001.


This island nation's 50 insurers were hurt in 1998 and early 1999 by shrinking demand for insurance after the economic crisis of 1997. However, Malaysia enjoyed a recovery last year, with total premium growth of 7.1% pushing income to ringgit 13.945 billion. Life business provided the lion's share, with premium rising by 10.9% to ringgit 9.344 billion. Hashim Harun, chief executive of South East Asia Insurance Bhd, told The New Straits Times that he expects further growth of 10% to 12% in 2000.

Motor business will be a major engine of growth, with new vehicle sales expected to grow 22% to 350,000 in 2000, after an 80% increase last year. Meanwhile, the government brought in new regulations to strengthen insurers. From 1 January 2000, the minimum absolute margin of solvency was increased to ringgit 40 million, and is set to rise to ringgit 50 million by 1 January next year. Insurers saw requirements for minimum paid-up capital increase similarly. Meanwhile Malaysian insurers' assets grew by 15.6% to ringgit 45.454 billion, and net retention rose to 87.2%.

Foreign investors have not rushed to Malaysia in recent years, not least because many have been made to feel unwelcome. However, the protectionist attitude may be thawing. Malaysia was for the latter years of the 1990s a hold-out in the World Trade Organisation's efforts to negotiate the General Agreement on Trade in Services, with the nation's controversial leader, Mahathir Mohamad, preferring to nurture a local insurance industry. However, in 1997, it bowed to pressure and offered to allow foreign companies to own 51% of Malaysian insurers (after a drive to “localise” insurers which began in 1989). Allianz recently offered to increase its holding in Malaysia British Assurance Bhd by 32% to 54% (requiring a subsequent disposal of 3%). The deal looks set to be completed swiftly.

The move follows a similar equity restoration made in 1998 by the UK's Prudential plc, which holds 51% of the life insurer Berjaya Prudential Assurance Bhd. This year Prudential has linked with Standard Chartered bank to offer insurance products in the bank's branches, and put its consultants on site. But unlike exclusive bancassurance deals familiar in Europe, Standard Chartered plans also to offer CGNU products. Meanwhile, in May, Fortis of Belgium announced it will sell bancassurance products through a partnership with Malayan Banking Bhd, and purchase a 30% equity stake in the bank's insurance subsidiary.


The city-state of Singapore, where reinsurers wrote gross premium of $4.6 billion in 1998, is the unchallenged reinsurance capital of East Asia. The market felt a ripple from the Asian financial crisis, but quickly rebounded and has since seen several important developments. Reinsurance brokers are now to be regulated by the Singapore Monetary Authority, which has introduced minimum capital and indemnity insurance requirements. The regulator is developing new rules to foster Alternative Risk Transfer (ART) business, and particularly securitisation, on the tiny island. Finally, Lloyd's has selected Singapore as the location for its new underwriting operation in East Asia - a final jewel in the crown of Singapore's status as Asia's reigning insurance hub.

The country remained relatively closed to foreign direct insurers until March, when the Authority announced sweeping market reforms, including the lifting of a restriction limiting foreign ownership of direct insurers to 49%. Singapore was immediately opened to unfettered competition. Restrictions on the entrance of direct insurers and brokers have also been lifted, although the admission of new insurers will be staged to prevent a flood of new entrants unbalancing the market. The Authority will ensure that new entrants meet specific criteria of rating, ranking, and reputation. Many comers are likely to do battle for Singaporeans' business: some 78% of people hold life insurance policies, and property penetration is also high.

Recognising a likely increase in competition, the Authority encouraged consolidation in the financial services industry, and invited local insurers to “merge or form strategic alliances with other financial industry players.” It said the move would “enhance local insurers' ability to modernise, expand, and to become credible regional players.” However, S & P has warned that some of the country's 59 direct insurers are likely to fail in the short term, as growth stagnates, insurers continue to write to technical losses, and increased competition from new entrants forces rates down.

  • Adrian Leonard is a freelance insurance journalist.